Chapter 4: In Defence of Sensible Economics
1 Thomas Sterner UNCERTAINTY IN CLIMATE AND IN THE STERN REPORT Many people2 are critical of the role of conventional economics in integrated assessments of large-scale, risky issues such as climate change. While I share many of the concerns in general, I would lean somewhat in the other direction. As suggested by the title of this chapter, I believe that economic models can help clarify some of the very difficult ethical and philosophical issues involved, at least if done sensibly. One key phenomenon that has been the subject of much discussion in this area is the degree of uncertainty and the handling of this uncertainty. It should nevertheless also be said at the outset that some things are fairly certain. There is, for example, reasonable certainty that an anthropogenic increase in the natural level of radiative forcing is caused by the total quantity of greenhouse gases emitted, which is gradually leading to an increase in average global temperatures. The rate of warming that corresponds to any given increase in greenhouse gases is, however, uncertain, and the biological and other effects of this warming even more so. The highest degree of uncertainty concerns the economic costs of this human-induced climate change. In the Stern Review (Stern, 2006) – and even more so in the debate that the report has sparked – there is a very wide range of costs of climate change. Some of this uncertainty is due to biogeophysical uncertainties. These uncertainties are built in part on physical feedback effects, such as,...
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